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Worldwide escape from the dollar continues


By Daily Crux Editor Justin Brill: 

India - whose central bank recently bought half of the 400 tonnes of gold the International Monetary Fund had offered for sale - has indicated it may now buy the remaining 200 tonnes. It is open to making additional purchases in the future.

We don't know where gold is going tomorrow, next week, or next month - but the trend of large gold purchases by foreign countries has clearly begun, and it should help put a long-term floor under its price.

Smart money pouring into commodities


By Daily Crux Editor Sean Goldsmith: 

Hedge funds are investing the most money in commodities since last August, betting real assets will soar during the inflationary rebound. 

From Bloomberg: 

Sugar and corn had the largest net-long positions by the week ended May 19, while investors held the largest net-short positions in natural gas and copper. 

"Agricultural products are not going to be as vulnerable to the current economic retrenchment as things like metals or oil," Norrish said.

The Reuters/Jeffries CRB index of 19 raw materials is up 6.3% this year after a 36% fall in 2008. read full report

Crude oil is breaking down


From Hard Assets Investor:

Investors often complain about being blindsided by sudden shifts in market momentum. Well investors, take a gander at the crude oil futures chart and see if you can see a big red momentum flag. 

Notice how the daily highs and lows scored by the NYMEX nearby contract have gotten lower over the past month? This is a classic "flag" formation (the flag's formed by two trend lines, one connecting the recent highs, the other the recent lows). A flag formation usually is a pause in a continuing trend that allows a market to gather strength for another leg.

Usually. But not always. Sometimes...  read full report

How to predict the price of gold


By Jeff Clark in Casey's Daily Dispatch:

Long-term readers know that gold moves inversely to the dollar, meaning if the dollar drops, gold tends to rise (and vice versa). This happens with about 80% regularity. But what many gold writers haven’t acknowledged is the leveraged movement our favorite metal has demonstrated this year to the world’s reserve currency.

The U.S. dollar index, a six-currency gauge of the greenback’s value, has dropped 7.1% so far this year. Meanwhile, gold is up 34% year-to-date. In other words, for every 1% drop in the dollar index, gold has risen 4.7%. If that approximate percentage holds over time, one can begin to estimate what the gold price might be if you know what the dollar might do.

While the dollar is likely to bounce at some point, making gold correct, the long-term fate of the dollar has already dried in cement. If the dollar were simply to return to its March 2008 low of 71.30 next year - a 5% drop from current levels - this would imply a rise in gold of 23.5% and a price of about $1,437 an ounce.

The long-term scenario is more dramatic. If you believe the dollar will lose half its value from current levels, this would imply a gold price around $2,735. If you believe it will lose 75% of its value, gold would reach about $4,103. Doug Casey has called for a $5,000 gold price; if he’s right, guess what that implies for the dollar?

And think about this: these calculations ignore what else might “show up,” such as when price inflation shows up in the economy, the greater public shows up to buy gold, or the Chinese don’t show up at an auction. Could $5,000 gold be too low?

Unless you think the dollar’s problems are solved, its eventual demise is gold’s eventual glory. Prepare, and invest, accordingly.

Crux Note: To learn about Jeff and the Casey team's favorite ways to play gold today, take a look at the November issue of Casey’s Gold & Resource Report. At just $39 a year - with a risk-free three-month trial - taking it for a test run is a no-brainer. Check it out here.

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